Factory prices raise inflation fears

INFLATION fears resurfaced today after it emerged that the cost of goods leaving Britain's factory gates rose in August at the fastest pace in nine years.

Official data showed core producer output prices - stripping out volatile food, drink, tobacco and petroleum products - leapt by 0.5%, the biggest one-month increase since July 1995 and five times the rate forecast by the City. The year-on-year rate of increase accelerated from 1.7% to 2.1%.

Economists said evidence was mounting that manufacturers were increasingly able to pass on higher raw material costs. They have been driven higher in recent months by sky-high oil prices and rose a further 1.6% in August.

Jonathan Loynes at Capital Economics said the news was a reminder that it was too soon to conclude that interest rates have peaked, despite the cooling housing market.

Simon Rubinsohn, chief economist at broker Gerrard, said: 'The data provides further evidence of a pick-up in pricing power in the manufacturing sector. It is

consistent with the sharp rise in price expectations signalled in the monthly CBI survey.

'We would not draw too many conclusions from today's number. Our estimate is still that inflation is likely to pick-up over the next few months.'